The headache around the lack of proper procedure by FSPs when debarring representatives appears to be continuing, despite clear guidelines from the Regulator.
In the FSB’s first quarterly bulletin of 2014, the problem is set out as follows:
“…it is disconcerting that a substantial section of the FSB’s FAIS Department should be occupied by having to deal with an inordinate number of debarments and a concomitant increase in complaints from debarred representatives at the manner and fairness of their debarments…”
“In almost all cases of complaints received, the FSB has been prevailed upon to exercise its authority to intervene and overrule debarments inflicted upon representatives by FSPs. Often representatives have taken recourse to court, joining the FSB as second respondent. Speaking generally, the FSB’s position in the latter instances was to abide by the judgment of the court, unless an order was sought against the FSB, other than to adjust its central register of representatives, if the representative’s application against the FSP was successful.”
Two recent court cases shed more light on this niggling issue.
Case Study 1
A bank broker resigned on 30 December 2013, after 10 years at the bank, to join a competitor, and gave due notice. On 13 January 2014, he was suspended “…on the grounds of enticing clients away”, and was asked to leave forthwith.
The broker instructed his personal assistant to clear all emails of a personal nature from his computer. In the process, she “inadvertently sent a list of his clients to his personal email address”.
On 22 January he received a written notification to attend a disciplinary hearing on 29 January, where he was charged with dishonesty associated with the above instruction to his PA. He was found guilty, and dismissal was recommended by the hearing. It appears that no mention was made of the fact that he would be debarred.
He joined the new firm, but was advised on 10 April 2014 that he would be suspended by his new employer as his name was placed on the list of debarred representatives on 29 January 2014.
The broker approached the court asking that an interim interdict be issued to have his name removed from the list of debarred representatives. In his application, he provided several grounds for the application to review, a substantial number of which concerns irregularities related to the disciplinary hearing. He contended that the outcome of the hearing “…was taken for an ulterior motive because he and others have taken up positions with a competitor of the Bank.”
The court granted the interim relief, and instructed the FSB to remove his name from the list of debarred representatives, based on the fact that the broker was “afforded no hearing relevant to his debarment…”
Case Study 2
“(The) Court was called upon to decide whether
- The key individual had lawful reason to request and secure a debarment… without complying with the statutory provisions and directives and
- Whether the first respondent (the FSB) had acted lawfully in effecting the debarment.”
On 16 July 2013, the court handed down a judgment in which it ordered the FSB to uplift the debarment of the representative. An application for leave to appeal was refused, and the respondent was ordered to pay the costs of the application.
The background to the second case is actually a very sad story, in which the judge stated that the debarment was “malicious”: Debarment must be effected for the purpose it was designed for – to prevent persons who are not fit & proper from rendering financial services – and not for ulterior motives such as self-interest or retaliation.
The implications of not following due process can be very costly. We suggest that you download and file a copy of the guidelines published in November 2013 to avoid this. You will also want to keep a copy of the Debarment Notification on file.